South Africa, despite its “emerging market” status, has a sophisticated financial sector. With the country’s re-integration into the global sphere in 1994, corporate governance rules, disclosure, transparency and accountability have become an integral part of doing business in South Africa.
Regulations governing the financial sector, and particularly risk management, have undergone considerable refinement to align them to internationally recognised standards and best practice.
The financial, real estate and business service sector accounted for nearly 20% of the country’s real value added (value of total production) in 2006 and, together with other services sectors, has proved to be a pillar of the country’s economic growth over the years.
The sector boasts dozens of domestic and foreign institutions providing a full range of services – commercial, retail and merchant banking, mortgage lending, insurance and investment.
South Africa’s banking sector compares favourably with those of industrialised countries. Foreign banks are well represented. Global confidence in South Africa’s banks was confirmed by the World Economic Forum’s Global Competitiveness Report 2008/9, which ranked South Africa’s banks as the 15th most secure out of 134 countries reviewed.
Electronic banking facilities are extensive, with a nationwide network of automatic teller machines (ATMs). Internet banking is also available.
The Financial Services Board oversees the regulation of financial markets and institutions – including insurers, fund managers and broking operations, but excluding banks, which fall under the South African Reserve Bank.
The South African banking system is well developed and effectively regulated, comprising a central bank, a few large, financially strong banks and investment institutions, and a number of smaller banks.
Many foreign banks and investment institutions have set up operations in South Africa over the past decade. The Banks Act is based on similar legislation in the United Kingdom, Australia and Canada.
Although no formal agreements have established a consistent international position in the area of banking regulation, there have been amendments to exchange controls as well as financial market legislation, making South Africa an attractive investment prospect.
The National Payment System Act of 1998 was introduced to bring the South African financial settlement system in line with international practice. The Act confers greater powers and duties on the SA Reserve Bank in respect of providing clearing and settlement facilities.
The Payment Association of South Africa, under the supervision of the Reserve Bank, has facilitated the introduction of payment clearing house agreements. It has also introduced agreements pertaining to settlement, clearing and netting agreements, and rules to create certainty and reduce systemic and other risks in inter-bank settlement. These developments have brought South Africa in line with international inter-bank settlement practice.
Investment and merchant banking remains the most competitive front in the industry, while the country’s “big four” banks – Absa, Standard Bank, Nedbank and FNB – continue to consolidate their grip on the retail market.
An office headed by the Registrar of Banks, operating as part of the Reserve Bank, is responsible for registering institutions as banks or mutual banks, and for enforcing the legislation.
The registrar acts with relative autonomy in executing his duties, but has to report annually on his activities to the Minister of Finance, who in turn has to table this report in Parliament. The extent of supervision entails the establishment of certain capital and liquidity requirements and the continuous monitoring of institutions’ adherence to legal requirements and other guidelines.
The performance of an individual institution is also monitored against developments in the relevant sector as a whole. If deemed necessary, inspectors can be appointed to inspect the affairs of any bank, or any institution or person not registered as a bank if there is reason to suspect that such an institution or person is carrying on the business of banking.
Financial Services Board
The Financial Services Board is an independent institution established by statute to oversee South Africa’s non-banking financial services industry.
The board’s mission is to promote sound and efficient financial institutions and services, together with mechanisms for investor protection.
Major financial institutions regulated by the board include the country’s exchanges and insurers, both short term-and long-term.
Image: The call centre at Absa Bank, one of South Africa’s largest financial services organisations.
Photo: Chris Kirchhoff, MediaClubSouthAfrica.com